A recent Motley Fool research report examined how many adults in the U.S. own stocks. The answer, per a Gallup survey, is 58% of them do -- about 150 million people. That's pretty good, though of course it would be far better if another 42% did as well.
The report also cited data from a 2019 Federal Reserve report, showing that only 15.2% of American families directly owned stock. That's a far smaller number, and it might seem like a bad thing, but it's really not that worrisome at all.
Image source: Getty Images.
Directly vs. indirectly
So what, exactly, does it mean to own stock directly vs. indirectly? Here's an example: if you have a portfolio of stocks that you have invested in via a brokerage, you own them directly. They will be itemized on your brokerage statements and shown as your positions in your account on the brokerage website.
If you (or your spouse, in a shared account) have not bought (or perhaps inherited) shares of stock on your own -- but you own shares of a stock mutual fund, a stock-focused exchange-traded fund (ETF), or some similar investment, then you own stock indirectly. The mutual fund or ETF is what has invested in stocks and perhaps other securities, and you own shares of that mutual fund or ETF.
It's generally not problematic to own stock indirectly -- unless the mutual funds or ETFs or other investments that hold your stock are problematic, perhaps due to high fees or poor performance.
In many cases, people own stock indirectly because they've invested in low-fee, broad-market index funds, which are excellent investments. Index funds have grown more popular over recent decades, and as more and more people have 401(k) accounts available to them at work and more people have begun participating in them, they've often opted to invest much of that money in index funds.
Indeed, per a recent CNBC article, fully $7 trillion is invested in vehicles such as index funds that track the S&P 500.
Why index funds?
Low-fee index funds that track broad market indexes are great investments for most of us and are even preferable to direct stock investments for those of us who are not savvy stock pickers or don't have the time or energy to study and follow individual companies. A low-fee index fund will hold roughly the same stocks in the index it tracks and will deliver roughly the same returns (less those minimal fees).
The overall stock market has averaged annual returns of close to 10% over long periods. Over your particular investing period, you might average more or less than that. Check out the table below, which shows how much you might amass over time if you average 8% annually:
|
Growing at 8% for |
$7,500 invested annually |
$15,000 invested annually |
|---|---|---|
|
5 years |
$47,519 |
$95,039 |
|
10 years |
$117,341 |
$234,682 |
|
15 years |
$219,932 |
$439,864 |
|
20 years |
$370,672 |
$741,344 |
|
25 years |
$592,158 |
$1,184,316 |
|
30 years |
$917,594 |
$1,835,188 |
|
35 years |
$1,395,766 |
$2,791,532 |
|
40 years |
$2,098,358 |
$4,196,716 |
Source: Calculations by author.
See? Those are the kinds of results you might get simply by investing in index funds over the long term. And all that can be achieved via indirect ownership of stocks.
Which index funds?
Below are a few great index funds in which you might invest via a 401(k), an IRA, or a regular, taxable brokerage account. There are plenty more too.
- SPDR S&P 500 ETF (SPY -0.38%)
- Vanguard Total Stock Market ETF (VTI -0.47%)
- Vanguard Total World Stock ETF (VT -0.32%)
Respectively, they'll instantly invest your money in 80% of the U.S. stock market, the entire U.S. market, or just about all of the world's stock market.
Most of us need to build a war chest of investments for retirement and future goals, and an effective way to do so is to park long-term dollars in stocks, whether directly or indirectly. Be part of the 58% of adults in America who are investing in stocks.
